Global economic growth is solid but slowing, and emerging Asia will continue to power the insurance market, sigma says

Global economic growth will remain strong over the next two years, although momentum has peaked. Swiss Re Institute's latest sigma "Global economic and insurance outlook 2020" says the still-positive economic momentum will support the insurance sector, with global premiums up more than 3% annually over the next two years in real terms, a one-percentage point increase from 2018. Most demand will come from emerging Asia, where premiums are forecast to increase at more than three times the global average rate, by close to 9%. Innovation in insurance will expand the boundaries of insurability and further drive premium growth. It will also help improve global resilience by narrowing existing insurance protection gaps.

"The global economy has been performing well, and growth will remain solid," says Jerome Jean HAEGELI, Chief Economist at Swiss Re. "However, the best is probably over. Cyclical momentum is positive, but we expect real GDP to slow by about 1-2 percentage points in most parts of the world over the next two years. This also takes into account mounting structural challenges to growth, such as higher debt burdens, reduced savings on account of aging societies, and low productivity."

Swiss Re Institute estimates that the US economy will grow by 2.9% growth in real terms in 2018, and by 2.2% in 2019 (consensus 2.6%,according to Consensus Forecasts, Consensus Economics, 8 October 2018) and 1.7% in 2020 (consensus 1.8%), as the Federal Reserve becomes less supportive and fiscal stimulus fades. Growth in the Euro area is forecast to slow to 1.5% and 1.4% in 2019 and 2020, respectively, from 1.9%. For Japan, GDP growth of 0.6% is forecast next year, down from 1.0% in 2018, due to weaker external demand.

The emerging markets, particularly in Asia, will continue to grow. Aggregate emerging market growth is expected to strengthen to around 4.9% annually over 2019 and 2020, after a 4.7%-gain this year. The forecasts are based on anticipation of economic recovery in countries that have struggled in recent years, including Argentina, Brazil, South Africa and Turkey. Emerging Asia will continue to outperform, with the Chinese and Indian economies forecast to grow by more than 6.0% annually over the next two years.

Downside risks increase
Downside risks to global growth have increased of late. In the medium term, the record low level of unemployment in the US will likely lead to higher wage gains, and higher risk of overheating in the US. This could disrupt the expected trajectory of monetary policy normalization, with the Federal Reserve raising rates more aggressively than expected. Excessive tightening of financial conditions would lead to greater market volatility and a slowdown in economic activity. Longer term, the main risk is escalation of current trade tensions between the US and China into a global trade war. The report estimates that in a worst-case scenario such as a 10% tariff on all goods trade worldwide, global GDP would reduce by 1.5%-2.5% over three years.

From west to east: emerging markets to drive insurance growth
Insurance premium development will be supported by the solid economic growth environment. Swiss Re Institute forecasts that global non-life and life premiums will both grow by around 3% annually over 2019/20. The gains will be driven by the emerging markets. Wealth in the emerging markets has grown significantly and a 1-percentage-point rise in GDP 2018 has a much greater impact in premium volume terms than it would have had a decade ago.

In addition, many markets have progressed to the steeper area of the insurance "S-curve" and the impact of income growth on insurance demand is much bigger.

"With the global economic power shift from west to east continuing unabated, China and emerging Asia in particular, will be the main source of insurance demand in the coming years," HAEGELI says. "Based on our models, we project that in US dollar terms, the growth rate of insurance premiums in emerging Asia will be more than three times that of the world average over the next two years." According to sigma data, China's share of global premiums increased from 0.8% 2000 to 9.7% in 2017, and is forecast to expand to 16% by 2028.

Ten years after the global financial crisis, is the world more resilient?
The latest sigma also addresses the issue of resilience, saying that the world economy remains ill-prepared for a global recession. The economy has less capacity to absorb shocks given the lower growth trends when compared to 10 years ago, higher debt burdens, weaker financial market structures and a move to less openness. Swiss Re Institute encourages a move towards more private capital market solutions to remedy the situation, with the public sector promoting financial market standards wherever possible (for example for sustainable and infrastructure investments), state contingent debt instruments for sovereigns, further country-specific structural reforms and less central bank intervention.

Insurance is a central pillar of resilience and with a more-supportive policy environment, insurers will be better able to expand their risk-absorbing capacity and long-term investment activities in resilience-building projects such as infrastructure. According to latest data from different sources, this sigma estimates that the global re/insurance sector has total assets under management of about USD 30 trillion - roughly three times the size of China's economy. This large asset base should be fully mobilized as risk absorber. Further, the report newly estimates that the global mortality and property protection gap currently stands at USD 500 billion in premium-equivalent terms. The gap represents the still elevated vulnerability to adverse events for many households and businesses across the world, and the very large opportunity for insurers to further contribute to improving resilience.

Innovation in insurance will narrow protection gaps. Product innovations such as parametric insurance, for example, are expanding the scope of insurability for natural catastrophe risks that have previously been difficult to insure. Technology will support the innovation. For example, businesses are seeking covers for previously uninsurable exposures like earnings and cash flow losses due to contingent business interruption, cyber, product recall and weather and energy price risks. The evolution of double-trigger indemnity structures, and data and modelling advances is allowing insurers to develop ever-more innovative covers for such exposures.

Follow XPRIMM Publications on LinkedIn, for more data on the insurance and financial industry.

Share |

Related articles

BI non-physical losses: the UK solution

With the Royal Assent being given to the Counter-Terrorism and Border Security Bill 2018 - allowing Pool Re to cover non-physical losses incurred following a terrorist attack -, the British market has set a precedent at global level, by finding solving a challenging issue born by the changed character of the terrorist attacks of the recent years.


WEF's global Top 5 most concerning trends 2019: changing climate, cyber dependency and increasing social disparities and national sentiment

Rising geopolitical and geo-economic tensions are the most urgent risk in 2019, while environmental degradation is the long-term risk that defines our age, with four of the top five most impactful global risks in 2019 related to climate. Rapidly evolving cyber and technological threats are the most significant potential blind spots; we still do not fully appreciate the vulnerability of networked societies. These are some of the main conclusions of the World Economic Forum's Global Risks Report 2019.


Insurance, a key player in building resilience

"The frequency of natural disasters is increasing, and the damage they cause will be greater as the world population becomes more urban and concentrated in areas prone to catastrophe," one of the latest analysis published by Aon under the Global Insurance Market Opportunities titles sates.



Supervisory Board Chair NN Group steps down

NN Group announces that Jan HOLSBOER, chair of the Supervisory Board of NN Group, has decided to step down as of the close of the annual general meeting (AGM) on 29 May 2019. The Supervisory Board has elected David COLE as Jan HOLSBOER's successor.


Peter CLARKE named VP & COO of FAIRFAX

FAIRFAX Financial Holdings Limited announced that Peter CLARKE has been appointed Vice President (VP) and Chief Operating Officer (COO) of FAIRFAX, reporting to FAIRFAX President, Paul RIVETT.



Inclusive Insurance - just a week to the second edition of IIF - CEE & SEE Regional Actuarial Insurance Conference in Skopje

Insurance should be accessible to all social classes, regardless of their wealth & income status. Products offered today are conventional insurance products, largely inspired from the developed markets as "one-size-fits-all" solutions, affordable to only middle- and high-income clients in the Eastern Europe's emerging & developing markets. Inclusive insurance's goal is making insurance available to all, with responsible insurance offers, thus making up for a solution to narrow the insurance coverage gap in the region.


Latest trends and challenges in the property and motor insurance lines under scrutiny, in Vienna

Property and motor insurance lines are providing for about 75% of the non-life insurance business in the CEE region, but are responsible for over 77% of the claims expenses. As such, although other classes of risks are emerging, for the time being and most probably for a rather long period ahead, property and motor insurance lines will continue to be at the heart of CEE's insurance market architecture.


FIAR 2019: Register before 28 February and save EUR 400 of the attendance fee

To the satisfaction of its traditional guests, FIAR returns in 2019 to its historical hometown, Sinaia. The forthcoming edition will benefit from the comfort and professional facilities of a new venue, the Conference Center of the International Hotel ****, located in the heart of the beautiful mountain resort. Registration is opened at a significantly discounted early bird rate until 28 February.


See all